Optimal Group Announces Fourth Quarter and 2005 Year End Results
MONTREAL--(BUSINESS WIRE)--March 6, 2006--Optimal Group Inc.:
-- $13.6 million ($0.52/share) in Underlying Earnings for Q4 2005
-- $38.5 million ($1.52/share) in Underlying Earnings for 2005
-- Increases Financial Guidance for Q1 2006
Optimal Group Inc. (NASDAQ:OPMR) today announced its financial results for the fourth quarter and year ended December 31, 2005. All references are to U.S. dollars.
Revenues for the fourth quarter ended December 31, 2005 were $61.9 million compared to $30.9 million in the fourth quarter ended December 31, 2004.
Underlying earnings from continuing operations before income taxes and non-controlling interest for the fourth quarter were $13.6 million or $0.52 per diluted share compared to $4.9 million or $0.21 per diluted share in the fourth quarter of 2004.
Underlying earnings from continuing operations before income taxes and non-controlling interest is a non-GAAP (Generally Accepted Accounting Principles) financial measure that excludes amortization of intangibles, amortization of property and equipment, inventory write-downs, stock-based compensation expense, restructuring costs, foreign exchange, impairment losses, gain on sale of investments, income taxes, non-controlling interest and discontinued operations. A reconciliation of Optimal's underlying earnings from continuing operations before income taxes and non-controlling interest is included in Annex A to the Company's consolidated financial statements attached below.
Net loss incurred in the fourth quarter ended December 31, 2005 was $20.6 million or $0.89 per share, which includes stock-based compensation of $14.1 million or $0.61 per share ($0.54 per diluted share), due primarily to the accelerated vesting in the fourth quarter of all unvested stock options and restricted share units, impairment losses of $7.1 million or $0.31 per share pertaining to the Company's hardware maintenance and repair outsourcing services business segment, and $3.3 million or $0.14 per share of restructuring costs. The net earnings for the comparable year-earlier period were $0.5 million or $0.02 per diluted share, which included amortization of stock-based compensation of $1.9 million or $0.08 per diluted share.
Optimal's Board of Directors approved the accelerated vesting, in the fourth quarter, of all unvested stock options previously awarded to employees, officers and directors to eliminate compensation expense that would otherwise be recognized in Optimal's income statement with respect to these stock options. Optimal's Board of Directors took this action with the belief that it is in the best interest of shareholders as it will reduce the Company's reported non-cash, compensation expense in future periods. The primary purpose of the acceleration is to eliminate future non-cash, compensation expenses associated with the accelerated options that the Company would otherwise recognize. As a result of the accelerated vesting, and the concurrent accelerated vesting of unvested FireOne Group plc restricted share units, Optimal recorded a non-cash, one-time stock compensation expense in the fourth quarter totaling $14.1 million, which will result in the elimination of quarterly stock based compensation expense in the same aggregate amount that would otherwise be required to be recognized over the six quarters ending June 30, 2007.
The unvested options which were accelerated are comprised of options granted under the Company's stock option plan and options originally granted by Terra Payments Inc. and assumed by Optimal upon its acquisition of Terra Payments. In order to prevent unintended personal benefits to employees, officers and directors, the Board of Directors imposed restrictions on any shares received through the exercise of accelerated options held by those individuals. These restrictions prevent the sale of any stock obtained through exercise of an accelerated option prior to the earlier of the original vesting date or the individual's termination of employment. The Board of Directors of FireOne Group imposed a similar restriction upon the sale of the ordinary shares underlying the FireOne Group restricted share units in respect of which the vesting was accelerated.
Revenues for the year ended December 31, 2005 were $181.4 million compared to $89.4 million in the year ended December 31, 2004.
Underlying earnings from continuing operations before income taxes and non-controlling interest were $38.5 million or $1.52 per diluted share for the year ended December 31, 2005 compared to underlying earnings from continuing operations before income taxes and non-controlling interest of $7.3 million or $0.36 per diluted share for fiscal 2004.
Net earnings for the year ended December 31, 2005 were $0.6 million or $0.02 per diluted share, which includes stock-based compensation of $22.4 million or $0.88 per diluted share, impairment losses of $8.7 million or $0.34 per diluted share pertaining to the Company's hardware maintenance and repair outsourcing services business segment, and $3.6 million or $0.14 per diluted share of restructuring costs which includes a charge of $3.3 million in connection with the departure of a senior executive. The net loss for the comparable year-earlier period was $9.3 million or $0.46 per diluted share which included amortization of stock-based compensation of $5.7 million or $0.28 per diluted share.
Balance Sheet Highlights
Optimal's consolidated balance sheet remains strong. At year-end, the Company had:
-- cash, cash equivalents, short-term investments (including amounts held in reserve) and settlement assets net of customer reserves, security deposits and bank indebtedness of $106.2 million;
-- working capital, excluding cash and short-term investments held as reserves, of $62.2 million; and
-- shareholders' equity of $203.3 million.
Commenting on the announcement, Holden L. Ostrin, Co-Chairman of Optimal, said, "We are very pleased with our performance in 2005 and with the direction of our businesses. The fourth quarter of 2005 closes out a successful year for our core payments businesses. Throughout the year, Optimal has demonstrated strong and consistent sequential growth and we are looking forward to a continuation of that in 2006. Our focus on card-not-present transactions has enabled us to scale our business while simultaneously managing the inherent risk in those types of transactions."
Mr. Ostrin continued, "Our financial results for 2005 were strong. Optimal generated significant cash flow as demonstrated by our $38.5 million in underlying earnings before income taxes and non-controlling interest on total revenue of $181.4 million. 2005 was a very active year with a number of transactions completed. We remain very focused on the execution of the business plan that we have put in place for Optimal."
Increasing First Quarter 2006 Guidance
Optimal today announced that it is increasing its financial guidance for the first quarter of 2006. Optimal now expects to report adjusted earnings per diluted share of $0.23 to $0.25 based on fully diluted shares outstanding of approximately 26.4 million. Optimal's original guidance for this period was to report adjusted earnings per diluted share of $0.21 to $0.23 based on fully diluted shares outstanding of approximately 26.4 million. The revised guidance provided today reflects, among other things, better than expected performance across certain of our business segments.
Adjusted earnings per diluted share is a non-GAAP (generally accepted accounting principles) financial measure that excludes foreign exchange gains and losses and related income tax effects. Changes in foreign exchange rates are outside of the Company's normal operations and therefore difficult to forecast with any accuracy.
Use of Adjusted Earnings per Diluted Share
In addition to the financial measures prepared in accordance with GAAP, Optimal uses certain non-GAAP financial measures, including adjusted earnings per diluted share. Optimal believes that the inclusion of such measures helps investors to gain a better understanding of its core operating results and future prospects and is consistent with how management measures and forecasts the Company's operational and financial performance, especially when comparing such results to previous periods or forecasts.
As a result of the accelerated vesting of all of the Company's outstanding stock options and all of FireOne Group's outstanding restricted share units in the fourth quarter of 2005, Optimal accelerated the recognition of the non-cash compensation expense that would otherwise be recognized in future income statements. Having eliminated this non-cash compensation expense, Optimal believes that providing guidance on adjusted earnings per diluted share gives investors a better understanding of the Company's performance and Optimal will therefore discontinue providing "underlying earnings" guidance commencing with the first quarter of 2006.
Optimal will provide a reconciliation of adjusted earnings per diluted share in an annex to the Company's earnings release on a quarterly basis commencing in the first quarter of 2006.
Key assumptions and sensitivities
For the purposes of projecting our first quarter 2006 adjusted earnings per diluted share, we have made the following principal assumptions: there will be no events, such as the exercise or grant of stock options or restricted share units, which will significantly impact the number of fully diluted shares outstanding; first quarter growth in both the gaming and non-gaming payment processing industries will approximate the growth experienced in recent quarters; we will be successful in the continuing integration of the business assets acquired in 2005 by our payments business, and no unanticipated expenses will be incurred; bad debt expense will be consistent with our bad debt experience over recent quarters; and we will not suffer the loss, due to insolvency or otherwise, of any customer that accounts for a significant portion of the revenues of our payments or services business. Although we believe that the assumptions underlying our statement as to projected first quarter 2006 adjusted earnings per diluted share are reasonable, any of those assumptions could prove to be inaccurate and, therefore, there can be no assurance that such projection will prove to be accurate.
Our statement as to projected first quarter 2006 adjusted earnings per diluted share is forward looking, and does not take into account the potential impact of any future divestitures, acquisitions, mergers or other business combinations. Furthermore, our actual first quarter 2006 adjusted earnings per diluted share are subject to the risks and uncertainties summarized below under "Forward Looking Statements" and could differ materially from our projection. As well, the non-GAAP financial results of Optimal's results of operations are not meant to be considered superior to or a substitute for Optimal's results of operations prepared in accordance with GAAP.
Optimal's conference call will be held on Tuesday, March 7, 2006 at 10:00 am (EST). It is the intent of Optimal's conference call to have the question and answer session limited to institutional analysts and investors. The call can be heard beginning at 10:00 am (EST) as an audio webcast via Optimal's website at www.optimalgrp.com. As well, Optimal invites retail brokers and individual investors to hear the conference call replay by dialing 514-861-2722 / 1-800-408-3053 access code 3176210#. The replay may be heard beginning at 2:00 pm (EST) on March 7, 2006 and will be available for five business days thereafter.
About Optimal Group Inc.
Optimal Group Inc. is a leading payments and services company with operations throughout North America, the United Kingdom and Ireland. Through Optimal Payments, we process credit card payments for Internet businesses, mail-order/telephone-order and retail point-of-sale merchants, and process electronic checks and direct debits online and by phone. Through FireOne Group (London/AIM: FPA.L) and its subsidiaries, we process online gaming transactions through the use of credit and debit cards, electronic debit and through FirePay (www.firepay.com), a leading stored-value, electronic wallet. FireOne Group offers FirePay for non-gaming purchases as well. Through Optimal Services Group, we provide repair depot and field services to retail, financial services and other third-party accounts.
For more information about Optimal, please visit the Company's website at www.optimalgrp.com.